January breakout accelerates, S&P 500 clears 20-day volatility bands

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Technically speaking, the major U.S. stock benchmarks have registered massive breakouts to start the new year.

In the process, each index has confirmed its primary uptrend against the backdrop of persistently extreme bullish momentum.

Before detailing the U.S. markets’ wider view, the S&P 500’s
SPX, +0.14%
hourly chart highlights the past two weeks.

As illustrated, the S&P continues to take flight.

Tactically, near-term support (2,759) is followed by a firmer floor, circa 2,740, an area closely matching last week’s low.

Similarly, the Dow Jones Industrial Average has extended its breakout.

Here again, near-term support remains poorly-defined. A near-term floor (25,440) is followed by an inflection point just under the 25,300 mark.

Against this backdrop, the Nasdaq Composite is also trending firmly higher.

In its case, first support (7,181) is followed by a firmer floor matching last week’s low (7,111).

Widening the view to six months adds perspective.

On this wider view, the Nasdaq has knifed to all-time highs, confirming its primary uptrend. Though near-term extended, the straightline spike is longer-term bullish.

Tactically, the ascending 20-day moving average, currently 7,052, is followed by the breakout point, the 2017 peak of 7,004.

Looking elsewhere, the Dow Jones Industrial Average has also knifed to uncharted territory.

The breakout punctuates a bull flag, a continuation pattern, defined by the tight late-December range.

More immediately, the Dow has tagged the 26,000 mark early Tuesday, just seven sessions after reaching Dow 25,000. This marks its fastest-ever rally between round-number milestones, eclipsing the previous record of 23 sessions.

Perhaps not surprisingly, the S&P 500 is also refusing to pull in.

Recall that the S&P has registered just one close under its 20-day moving average since Aug. 29, signaling a strong near-term uptrend.

The bigger picture

Broadly speaking, the major U.S. benchmarks have taken flight to start 2018. Each index has reached record territory, confirming its primary uptrend in statistically unusual form.

Moving to the small-caps, the iShares Russell 2000 ETF has belatedly broken out.

Meanwhile, the S&P MidCap 400 has extended the January rally. Tactically, the breakout point, circa 349.20, remains the MDY’s first notable floor.

Against this backdrop, it’s worth quantifying the S&P 500’s unusually bullish 2018 start. The chart above includes the 20-day Bollinger bands, also known as volatility bands.

Illustrated in red, the bands encompass two standard deviations of the S&P’s trailing 20-day volatility.

Consider that the S&P has closed atop the bands on five of the prior seven sessions, signaling an increasingly familiar tension between time horizons.

For the near-term, the S&P 500 is extended, and due consolidate.

But more importantly, bullish momentum continues to register as extreme, likely laying the groundwork for longer-term follow-through. Put differently, the strong 2018 start marks a sustained two standard deviation breakout.

(The Dow Jones Industrial Average has also notched five closes atop the bands, over the prior seven sessions, though not the same five sessions as the S&P 500.)

Tactically, near-term S&P 500 support holds around 2,740, an area that underpinned the first modest 2018 pullback.

Delving deeper, the S&P’s 20-day moving average, currently 2,714, is followed by the breakout point, the 2017 peak of 2,695. Though a cooling-off period is overdue, the S&P 500’s near-term bias points higher barring a violation.

Tuesday’s Watch List

The charts below detail names that are technically well positioned. These are radar screen names — sectors or stocks poised to move in the near term. For the original comments on the stocks below, see The Technical Indicator Library.

Drilling down further, the U.S. dollar is off to a bearish 2018 start.

As illustrated, the PowerShares U.S. Dollar Bullish ETF
UUP, -0.34%
has reached four-month lows, resolving a head-and-shoulders top defined by the October, November and December peaks.

Tactically, a reversal atop the neckline (24.00) would mark an early step toward stabilization.

Conversely, deeper support matches the September low (23.66) while a longer-term downside target projects to the 23.15 area, closely matching the 2012 peak.

Conversely, the CurrencyShares Euro ETF
FXE, +0.27%
has taken flight. As always, the U.S. dollar and the euro are inversely correlated.

Technically, the shares have knifed to three-year highs, punctuating a successful test of trendline support.

The breakout point (116.40) pivots to well-defined support and is followed by the trendline circa 114.80. The euro’s technical bias points firmly higher barring a violation.

Initially profiled Jan. 13 — just over one year ago — Amazon.com, Inc.
AMZN, +0.43%
has returned 59.7%.

As illustrated, the shares have knifed to uncharted territory to start 2018, also edging atop the 1,300 mark.

Though near-term extended, and due to consolidate, the nearly straightline January rally is longer-term bullish. Tactically, support broadly spans from about 1,232 to 1,253, the former matching last week’s low.

Earlier this month, the shares gapped to four-year highs, rising after the company announced a partnership with China-based Baidu, Inc. to develop autonomous vehicle technologies.

The ensuing pullback has been fueled by decreased volume, placing the shares 6.6% under the January peak. Tactically, the post-breakout closing low (13.45) offers an area from which to work, and a posture higher supports a bullish bias.

The shares are higher early Tuesday after the company’s launch of cybersecurity software for self-driving cars.

The shares initially spiked 10 weeks ago, gapping higher after the company’s quarterly results. The ensuing pullback has been underpinned by the top of the gap, and punctuated by the January lift to resistance.

Tactically, the range top, circa 55.40, matches 14-year highs. An intermediate-term target projects to the 60 area on a breakout.

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